Domestic banks are forming a common front with the aim of having the same capital adequacy requirements as their counterparts elsewhere in Europe, a demand that has secured the understanding and support of Greek authorities.
The European Central Bank has announced that all banks in the eurozone will need to have Core Tier 1 capital of least at 8 percent from January 1, 2014, while in accordance with the terms of the Greek bailout agreement, the respective figure for this country’s banks stands at 9 percent.
The higher requirement forces Greek lenders to commit additional funds of 2 billion euros. Were their requirement to go down to the level of the rest of the eurozone, that 2 billion euros could be used to fuel the economy. Given that banks have to withhold about 10 percent of each loan issued as capital stock, that 2 billion might be used to issue loans of 20 billion euros to enterprises and households, which is equal to a tenth of the current loan balance. If that extra funding were used correctly, it could revive the economy at a particularly crucial moment for the country.
“The leveling of the requirements would immediately release liquidity into the economy,” a senior bank official underscored. “The current situation has no rationale, especially during a period when Greece needs additional cash flow to rekindle construction activity. Imposing higher requirements on Greek lenders has a punishing character and makes liquidity conditions worse,” he added.
Banking authorities are also asking for the conditions of the stress tests that BlackRock Solutions is currently performing on the local credit sector to be eased. They are not demanding a relaxation of the terms or other privileged treatment; they are simply asking to be able to operate under the same conditions as their European peers.
The capital adequacy requirements in the previous stress tests by BlackRock on Greek banks ranged between 7 and 10 percent, while during the stress tests on other European lenders that took place a little later the figure stood at 5 to 7 percent. Greek bankers say the 8 percent ECB threshold should be used by BlackRock as well. “Greek banks should not be burdened with capital requirements that are higher than other lenders,” another senior official said.